New Zealand Milk Products (Far East) Ltd. Taiwan, violated the Fair Trade Law for its terminating the supply of goods

Chinese Taipei

Case:

New Zealand Milk Products (Far East) Ltd. Taiwan, violated the Fair Trade Law for its terminating the supply of goods

Key Words:

discriminatory treatment, consumer's cooperative, two-tier-price

Reference:

Fair Trade Commission Decision of February 5, 1997 (the 275th Commission Meeting); Decision of June 18, 1997 (the 294th Commission Meeting)

Industry:

Composite retailing industry (5329)

Relevant Law:

Article 19 of the Fair Trade Law

Summary:

1. According to the complaint by Hwa Ying Corporation Ltd.(hereinafter referred to as "Hwa Ying"), (1) the Joint Consumers' Cooperatives in many counties/cities ("County/City Joint Cooperatives") have traded with non-members, making general supermarkets less competitive; and (2) suppliers (such as P & G Taiwan Corp., Ltd.) for the County/City Joint Cooperatives and the General Welfare Administration of the Ministry of National Defense have supplied commodities to the supermarkets at prices different from those charged to the Joint Cooperatives. For example, if any supermarket sells any goods at the same price as those displayed for sale in the Joint Cooperatives, those suppliers (such as the defendant, New Zealand Milk Products (Far East) Ltd. Taiwan (hereinafter referred as “New Zealand Ltd.) would terminate the supply of goods to the supermarkets and thus hinder the supermarket business. Therefore, the complainant filed a complaint to the Fair Trade Commission to request for investigating the issue and take appropriate disciplinary action.

2. In order to the learn actual case, the Fair Trade Commission requested the complainant, Hwa Ying to explain the situation before the Commission. The complainant indicated that the defendant had terminated its supply of goods to the complainant during its promotional period which the complainant sold goods at prices equivalent to or lower than those charged by the Government Employees' Welfare Supply Stations ("Welfare Supply Station"). The Commission then inquired into whether any other suppliers had performed similar acts. The complainant replied that suppliers such as Johnson & Johnson Co. supplied goods to the County/City Joint Cooperatives at a price more than 20% lower than that charged to the complainant. However, those suppliers did not terminate its supply of goods to the complainant. On the other hand, the Fair Trade Commission also requested the respondent, New Zealand Ltd., to defend itself before the Commission. The respondent pointed out that at the complainant’s early stage of incorporation, the complainant had requested the respondent to supply goods to the complainant at the same prices as those charged to the Welfare Supply Stations; however, based on the market segmentation consideration, the respondent rejected the request. Thereafter, the complainant turned to the respondent’s distributors for their supply of goods at the same prices as those paid by the Welfare Supply Stations; however, those distributors also rejected the complainant’s request for the same reasons.

In addition, Hwang Jhy Co., Ltd. (one of New Zealand Ltd.'s distributors in Tainan area) wrote a letter to the Commission, indicating that it had only sold goods to general retailers; it had never delivered welfare suppliers to any County/City Joint Cooperatives. Moreover, goods to be sold at the Welfare Supply Stations are complied with the supply agreement which is negotiated and singed between the County/City Joint Cooperatives and the defendant. Therefore, Hwang Jhy Co. had no business relations with any Welfare Supply Stations.

To cautiously handle the significant policy issues involved in this case, the Commission requested some relevant suppliers to designate representatives to comment and analyze the marketing channels of the consumer goods industry in Taiwan. Their comments and analysis indicate as follows: (1) The consumer goods market should always be in a state of competition. (2) The sales volume of consumer goods trading through government employees' marketing channels was very high. Unless traders obtaining supplies of goods through other channels offering promotional discounts, the sale prices of consumer goods offered by the government employees' marketing channels were usually the lowest. Sometimes, suppliers even sold goods to government employees' marketing channels at a loss, and used the profits they earned from general marketing channels to subsidize the loss they incurred in the government employees' marketing channels. (3) In response to the competition among sales outlets, suppliers usually offered different packaging, specifications, and promotional periods to meet the different demands of traders in different channels. (4) Although some suppliers expressed their reluctance to supply goods at the same prices as those offered to government employees' marketing channels, to non-consumer's cooperatives, which operate business in the name of the Joint Cooperatives, other suppliers, in considering the factors such as the high sales volumes achieved by and the large number of sale points connected with those non-consumer's cooperatives, as well as the competition in the market, would agree to provide them with the same goods at the same price as those offered to the Joint Cooperatives.

3. With regard to New Zealand Ltd.’s rejection to supply goods to the complainsnt at the same price as offered to the Joint Cooperatives, it should be treated as an enterprise’s consideration of individual pricing strategy, trading quantity, credit risk, and business relations, and neither Article 19(ii) nor Article 24 of the Fair Trade Law should be applicable. Besides, considering the policy in taking good care of government employees, the Government commissioned the Joint Cooperatives to handle the supplies of consumer goods. The strong demand by the specific sale points in connection with the Joint Cooperatives and the Cooperatives' price survey system helped lower the prices of goods to the greatest extent. In view of the Cooperatives' great demand, high sales volume, low trading risk, low cost spent in the course of sale, and other factors, many suppliers are eager to trade with them. However, because only small (or even no) profit can be earned from supplies to the Joint Cooperatives, and in order to prevent low-price goods from being sold at outlets of high-price goods, suppliers usually segment their goods into goods for government employees' marketing channels and those for general marketing channels so as to maintain their normal profit. That is the reason why the two-tier-price system was adopted. Under such circumstances, in response to the said price survey system, and in order to maintain the smooth operation of the two-tier-price system, suppliers offer different packaging and specifications. Although suppliers can use the cross-subsidization of the two-tier-price system to make more profit, the cross-subsidization may undermine the function of the market, which is not beneficial to any consumers. Under the system of free competition in the market, the two-tier-price system may waste social production resources and reduce production efficiency. Such an non-economic phenomenon is inconsistent with the legislative intent of the Fair Trade Law. Therefore, for the purpose of establishing an environment of fair and reasonable competition, maintaining the normal operation of the market, and eliminating obstacles from the market, the Fair Trade Commission has in writing, requested that the Bureau of Personnel Administration, the Ministry of Education, and the Ministry of the Interior to firmly prohibit the Joint Supply Cooperatives from demanding suppliers to offer them any preferential prices so as to limit the difference of the said two-tier- prices only for the purpose of saving cost. Nevertheless, because such issues as the impact of the said two--tier-price system on market transactions are related to competition policies, the Fair Trade Commission has decided to incorporate those issues into the discussion on the "Task Force of Deregulation in Promoting Market Competition" for further study.

　

Summarized by Lin, Y. C.
Supervised by Pai, Y. C.

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